There’s just something about a Christmas bonus that feels like an extra serving of holiday magic—an unexpected little dollop of a gift to add a little extra cheer. You might be tempted to grab those extra dollars and blow it all on gifts, vacations, or a new gadget, but take heart in the idea that your bonus could be working harder for you. Instead of fleeting joys, it could be the first step towards long term financial stability (and even wealth building).
Don’t matter whether your bonus is big or small, if you get one, you should have a plan. Thanks to being smart about those choices, your seasonal windfall doesn’t have to remain a windfall—it can be used as a weapon towards funding your financial dreams. To help you build a secure financial future with your Christmas bonus, here are 10 smart ways to make the most of the money.
Invest in a High-Yield Savings Account
Your bonus can sit in a high yield savings account. Due to the higher interest rates these accounts often offer, several times higher than traditional savings accounts, investors have flocked to cryptocurrencies. This is a simple, safe, hands off way to grow your money and leave it there so that if you need it for an emergency or other opportunity, it is there.
Max Out Your Retirement Contributions
You’ll be thanking your future self for saving for retirement. Putting money away into an IRA or 401(k) not only makes your wealth grow but can reduce the amount of taxable income you owe for the year. And if your employer offers a match, make sure to take the full advantage of it, free money is hard to beat.
Invest in the Stock Market
If you are not averse to a little risk, then put your money in the stock market. For beginners, index funds or ETFs are a good option to spread your risk by spreading your investment across multiple companies, as you stand to gain from the long term growth potential of all within your investment. Investing a $500 bonus in an S&P 500 index fund could turn into a good deal over a decade.
Start or Grow an Emergency Fund
An emergency fund is essentially your financial safety net — used for emergencies like a car repair or a medical bill. Experts say you should have three to six months of living expenses stashed away. If you have a thin, or nonexistent, emergency fund, this is the perfect time to build it up.
Boost Your Skills With Education
You can get incredible returns from investing in yourself. Use your bonus to purchase a course, certification or workshop to develop your skills or make you more marketable for your career. With time these new skills could help you gain a promotion, a salary increase, or open up entrepreneurial doors for you.
Pay Down High-Interest Debt
High interest loans such as credit card debt can drain you dry faster than you imagine. Paying this debt down or off with your bonus money could save you big money in interest in the long run, which would leave more money available for investing or saving down the road.
Start a Side Hustle
Take some of the pressure off and use Kickstarter to set up your passion project as a reality (get free money for your side hustle idea). Money from your Christmas bonus might even be enough to get it off the ground. There may not be a lot of money in a side hustle, but there is no investment of time and money like buying equipment, setting up a website or marketing your services. That’s just not worth it.
Real Estate Crowdfunding
Crowdfunding platforms are a good entry point for those who are interested in real estate, but aren’t ready to purchase property. Using these platforms, you have exposure to the real estate market without the heavy upfront cost as you invest smaller amounts into real estate projects.
Build a Dividend Portfolio
Over time, dividend stocks give you a steady stream of passive income. Invest your bonus in the stocks below, and you end up with a growing source of income in the form of dividends paid by their companies to their shareholders. Simple ways to turn your one time bonus into financial benefits that you can live on forever.
Donate and Get Tax Benefits
Charitable giving doesn’t just make you feel good, but it can also reduce your tax burden. Depending on your filing status, you get a deduction if you donate some portion of your bonus to a qualified nonprofit. Just as long as you remember to keep a copy of those receipts.
Disclaimer: This list is solely the author’s opinion based on research and publicly available information.
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